Local Services and International Market Integration

The consequences of international market integration are typically evaluated by comparing an equilibrium where international consumer arbitrage is impossible to a different equilibrium where arbitrage is assumed to be completely costless. This note suggests that this procedure tends to exaggerate the gains from integration since firms can still segment markets themselves after government imposed trade restrictions are removed. We develop a simple example with two products, one that is homogeneous across markets, and one that is bundled with a non-tradable, e.g., local services. Integration of the markets for the homogeneous product has the expected consequence of yielding product's price equalization across markets. However, integration of the markets for bundled products will leave the economy entirely unaffected.


Issue Date:
1993-06
Publication Type:
Working or Discussion Paper
DOI and Other Identifiers:
Record Identifier:
https://ageconsearch.umn.edu/record/275578
Language:
English
Total Pages:
24
JEL Codes:
L01; F05
Series Statement:
Working Paper No. 11-93




 Record created 2018-08-01, last modified 2020-10-28

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